In the new issue of Regulation, economist Pierre Lemieux argues that the recent oil price decline is at least partly the result of increased supply from the extraction of shale oil. The increased supply allows the economy to produce more goods, which benefits some people, if not all of them. Thus, contrary to some commentary in the press, cheaper oil prices cannot harm the economy as a whole.

Two long wars, chronic deficits, the financial crisis, the costly drug war, the growth of executive power under Presidents Bush and Obama, and the revelations about NSA abuses, have given rise to a growing libertarian movement in our country – with a greater focus on individual liberty and less government power. David Boaz’s newly released The Libertarian Mind is a comprehensive guide to the history, philosophy, and growth of the libertarian movement, with incisive analyses of today’s most pressing issues and policies.

Topic: International Economics and Development

Federal Reserve Board Chairman Ben Bernanke delivered an important speech Tuesday on the benefits of free trade to our economy and workers. Speaking to an audience in Butte, Montana, Bernanke explained why trade raises our standard of living and backed up his economic logic with up-to-date evidence.

He acknowledged that some workers and companies lose out, at least temporarily, from more vigorous global competition, but he warned that protectionism would be the worst possible policy response.

As the Fed chairman told his audience:

Restricting trade by imposing tariffs, quotas, or other barriers is exactly the wrong thing to do. Such solutions might temporarily slow job loss in affected industries, but the benefits would be outweighed, typically many times over, by the costs, which would include higher prices for consumers and increased costs (and thus reduced competitiveness) for U.S. firms. Indeed, studies of the effects of protectionist policies almost invariably find that the costs to the rest of society far exceed the benefits to the protected industry. In the long run, economic isolationism and retreat from international competition would inexorably lead to lower productivity for U.S. firms and lower living standards for U.S. consumers.

Rather than closing U.S. markets, Bernanke wisely recommends “policies and programs aimed at easing the transition of displaced workers into new jobs and increasing the adaptability and skills of the labor force more generally.”

If you want to understand what free trade really means for Americans, I recommend the full text of his illuminating speech.

The political spectrum in France is so distorted that a candidate who calls for new taxes, tax harmonization, expanded trade barriers, and restrictions on capital flows is the supposed conservative candidate. The UK-based Times reports on the anti-market views of Nicolas Sarkozy:

At his first EU summit, in Brussels in June, a President Sarkozy would push hard for a new tariff on imports from outside the European Union to protect jobs and discourage firms from moving production outside the area, he said. …Mr Sarkozy said that he would also press for harmonised business taxes — a project long rejected by Britain and other states. It was time to reduce the power of the national veto in such areas, he said. His proposal for a protective “European preference” in trade is also opposed by Britain and conflicts with the Union’s free-trade policies.

While the US Congress is infamous for its taxpayer-subsidized perks, US lawmakers are amateurs compared to the scammers in Brussels. Members of the European Parliament have a lavish taxpayer-financed retirement scheme that enables them to get $2 of taxpayer money for every $1 they put into their pension fund. But this immense perk does not even require them to necessarily use their own money. As the UK-based Telegraphreports, some MEPs – perhaps most MEPs – use office administrative funds:

The European Parliament’s bureau, the body that oversees the assembly’s administration, has voted to prevent publication of a list naming the 475 MEPs who benefit from a pension scheme worth more than £1,400 a month to Euro-MPs with the taxpayer matching every euro personally contributed with two from the public purse. Payments are controversial because, for “administrative reasons”, the MEP’s personal contributions are taken automatically from office expenses. No one checks whether the politician actually pays anything into the fund from his own salary. Many in Brussels believe that a “large proportion” of Euro-MPs are using their office payments to get a free second pension on top of national schemes.

Our friends and ideological rivals at the Economic Policy Institute in Washington are releasing a report this week that supposedly documents that trade with China has cost more than 2 million Americans their jobs. The report is illuminating, but in ways its author did not intend.

Here’s how EPI’s press release on the study describes its results:

The dramatic rise in the United States’ trade deficit with China from 1997 - 2006 has cost jobs in every region in the country. In a new report, Costly Trade with China, to be issued May 2, 2007 by the Economic Policy Institute, economist Robert Scott reports the growth of the trade deficit with China in this period has displaced production that supported 2,166,000 U.S. jobs, with New England being the hardest hit region of the country.

For reasons I’ve explained in detail before [.pdf], EPI’s methodology for calculating job losses from trade is fundamentally flawed. Its model ignores the dynamic effects of trade on U.S. economic growth, the beneficial effects of foreign investment, and the tremendous and healthy “churn” of the U.S. labor market.

Even if we accept EPI’s calculation of 2.2 million jobs lost, that is a drop in the bucket in an economy that employs almost 150 million people. Note that EPI’s number is spread over a decade, meaning that the actual number of jobs lost each year on average would be 216,600.

Compare that to the 320,000 or so Americans who line up EVERY WEEK to claim unemployment insurance after being displaced from their jobs–mostly because of technology, and domestic competition. In other words, trade with China, even by EPI’s exaggerated measure, accounts for about three business days’ worth of unemployment claims in a typical year.

More than compensating for the relatively small job displacement caused by trade with China are the huge benefits it delivers through lower prices at the store, lower interest rates, growing export opportunities, and greater peace and stability in East Asia.

Tax-news.com reports on the growing concern in Ireland about European Union plans to harmonize the definition of taxable income for corporations. Such a scheme, particularly if it is voluntary, is not automatically objectionable. But Irish lawmakers correctly fear that a common tax base is merely the first step on the path to harmonized (and higher) tax rates:

European Union Taxation Commissioner Laszlo Kovacs has reportedly told Irish business leaders that formal plans for a common EU corporate tax base will be unveiled by the European Commission next week. …despite Kovacs’s assurances that the system would be optional for businesses, many member states, including Ireland, are strongly opposed to the CCCTB plans, wary that it would be the first step towards the harmonisation of corporate tax rates across the EU, an idea favoured by France and Germany. If this was the case, Ireland would certainly have a lot to lose, as its 12.5% corporate tax rate has been cited as a major ingredient in Ireland’s economic revival in recent years, and investors certainly would not welcome European interference with Ireland’s corporate tax regime. Consequently, organisations such as IBEC, and Irish politicians, have been lobbying in opposition of CCCTB. …Irish MEP Eoin Ryan…told MEPs that he “cannot and will not accept” moves towards a common corporate tax base. “Tax competition is healthy for the economic development of the European Union. It provides a clear incentive to European Governments to manage their public finances carefully and to build a corporate tax regime that encourages enterprise,” he stated. “The bottom line here is that no one size fits all policy covering corporate taxation matters in Europe is going to succeed. It is neither sensible nor realistic to seek convergence of corporate tax rates across Europe. EU member states have different demographic and social priorities. EU member states need to use their corporate taxation policies in different ways so as to entice foreign direct investment into their countries and generate employment.”

I’m going on BBC radio shortly to comment on the creation of a new lobbying group called the Alliance for American Manufacturing. Funded in part by the United Steelworkers Union, the group promises to agitate for trade restrictions against allegedly “unfair” imports from China.

Putting the “unfair trade” charge aside for a moment, there is no evidence that U.S. manufacturing as a whole is suffering from import competition, whether fair or unfair (whatever that means). Consider a few facts that you probably won’t find on the AAM’s slick new website:

U.S. manufacturing output is up 40 percent in the past decade by volume. American workers continue to produce more chemicals and pharmaceuticals, more semiconductors and sophisticated medical equipment, more aircraft and even auto parts than ever before.

Imports from China have displaced relatively few Americans workers. Workers who have lost their jobs because of imports from China account for only about 1 percent of annual U.S. job displacement. The sectors where China has been most competitive tend to be in lower-value goods such as clothing, shoes and other labor-intensive products.

Manufacturing jobs have been declining, not because of falling production, but because of soaring productivity. We are producing record volumes of manufacturing output with fewer workers because remaining workers are so much more productive.

China represents the fastest growing major export market for U.S. manufacturing exporters.

To get more details and analysis on our trade relationship with China, check out my 2006 Cato Trade Briefing Paper, “Who’s Manipulating Whom?”